The Shorenstein Center at Harvard just released a report arguing that local newspapers are the most threatened by the internet. I’ll discuss how to deal with that “threat” in a moment.

But first, I have to say that I think the report’s methodology — and, a few cases, its analysis — are seriously flawed. They relied on just one source of data for news sites’ audience, Compete.com, and in my random check of its data versus the stats I know for various services, Compete wildly undercounts audience — by half or as much as two-thirds. Like all sampling methodology in a broadly distributed or fragmented universe, it cannot possibly accurately measure smaller, nicheier sites — that is, it will be biased against local sites because their audiences are smaller. In other words, its undercount for local news sites I know is worse than its undercount of NYTimes.com. And that comparison is critical to the study’s conclusions: that big, national brands are better off than local brands. They say they picked Compete because it is free and U.S.-based and that its rankings are relatively in line with other services. But rankings are not the basis of this report; absolute numbers are. So it is a pity that they did not also approach the sites they analyze to get server data and compare that with the samplers’ data. It also would have been helpful to go to services that have a broader view of traffic, such as Tacoda, to triangulate their data and also deal with issues of audience overlap.

Having said that, let’s still take the Shorenstein report’s conclusions at face value and talk about how local newspapers can deal with this alleged threat.

But first, I’ll challenge the notion that it’s a threat. As I see it, local newspapers are, for the first time since the advent of network news in the ’50s, in competitive markets. And I’ll argue that competition is good and healthy. The continuing growth of the national brands the report points to comes in a highly competitive national news market. So while the report notes that some of its small sample of metro papers are suffering flat or even declining traffic, it also notes growth in local TV stations’ sites — now that they are getting competitive and now that video is a workable medium on the web. And so, adding newspapers’ traffic with TV sites’ — and the many other local sites that are starting to blossom and that the report acknowledges are nearly impossible to measure using sampled data — isn’t there a net growth in local news traffic? anticipated. The report wonders: “[I]t is not clear just how much Internet traffic a particular community can bear. If local newspapers, television stations, and radio stations all compete strongly for residents’ Internet
time, are there enough users to go around?” That’s the wonder of competition. It’s not as if we pick one news site and stick with it; that’s even less likely in a medium built on links and search. No, I say that more news means more interest in news.

But let’s still accept the Shorenstein conclusion that national brands will have an easier time than local brands in attracting traffic. Says the report: “The Internet is also a larger threat to local news organizations than to those that are nationally known. Because the Web reduces the influence of geography on people’s choice of a news source, it inherently favors ‘brand names’–those relatively few news organizations that readily come to mind to Americans everywhere when they go to the Internet for news.”

I think they have a point. In a portal economy, the big guys get bigger. But I’ll keep arguing that the most successful internet company — Google — isn’t a portal but a distributed network and there are lessons in that for local news: WWGD.

So given present circumstances, are local newspaper sites screwed? Let’s take the Shorenstein report’s worst case and say they are. But the response to that should not be to lie down and die but to figure out what to do about it. This isn’t an attack on local newspapers. It is a new market reality. The only responsible response is change. A few humble suggestions, linking to posts on the subject I’ve written here:

* Get distributed. Get aggregated. The Shorenstein report marvels at the growth of Digg — growth so great (2-to-15 million users in a year) it wouldn’t fit on their chart. But the report’s authors come at this with an old-media prejudice: that aggregators are “free riders” that compete without bearing “an equitable share of the production costs.” Wrong analysis. These aggregators are your distributors — and they’re even better than newsstands because they’re more efficient and targeted and they don’t take a cut of your circulation revenue. So the natural question the report should be asking — the one that more and more wise newspapers are asking is: How do we get on Digg more often? How do get more links and audience Digg?

A while ago, I had lunch with a big-paper executive and brought son Jake along. The executive was pooh-poohing Digg, saying nobody really uses it. At that very moment — swear to God Google — Jake was sensibly bored and was engrossed in his iPhone. What was he doing? Digging. And how does Jake find the news he reads — and it’s a lot of news? Through Digg and friends. Aggregators and links, the magic combination. Jake told the executive that he doesn’t even go to blogs to read them anymore. He gets his news not from portals and brands but from links.

Keep in mind that I’m a partner at an aggregator, Daylife. Part of my reason for getting involved is that I believe aggregation and links are the keys to success for news organizations online. Without aggregation and links, all you have is marketing costs to attract users to a portal that doesn’t fit in their online lives anymore.

* Think beyond the link: Widget it. Perhaps a link isn’t enough. In relying on the link, we are still making people come to us. We should be going to them. Listen to CBS’ Quincy Smith: “We can’t expect consumers to come to us. It’s arrogant for any media company to assume that.” What does that mean? I’m not sure. But think of it this way: The more that we can find ways to put out content out there — and benefit from branding and monetization via advertising or other means — and the more we can get people to distribute us (in which case, we are the free riders), the larger we will grow. So if we can come up with those means, we should encourage the aggregators and portals and bloggers to take our stuff and spread it around. If.

* Network. Network. Network. We need to network in every sense of the word:
1. Just as we need to be aggregated, we need to aggregate. We need to pull in a broader network of content from our communities. We can’t do it all ourselves, not anymore.
2. We need to set up networks that benefit these new producers so we can gather more and produce less. I mean ad networks.
3. Get involved in our communities. If our value is local then we have to get local and mean it. We need to crack the hyperlocal nut and that’s not just about content. That’s about enabling a community to do what it wants to do. That’s about human relations in our communities. Local is about people.
So in the long run, to measure our success and influence and loyalty, you don’t just measure one site, you measure our presence in the community online.

* Promote while we still can. Rather than fretting about cannibalization, we should be using our diminishing promotional power to push people to what comes next. Invent it. Promote it.

* Report, damnit, report. The most important thing we can do is, of course, bring journalism to the community: report. We need to become known as the indispensable sources of local help and information and I’d argue — contrary to the Shorenstein report — that this comes not from trying to compete with the big guys in national, commodity news but by putting all our resources behind what we do best and what no one else — including, ferchrissakes, local TV — can afford to do: report. We have to make our value absolutely clear and we need to increase that value even as our resources are diminished. How? Do what you do best and link to the rest.

Blodget’s first analysis — in which he purports to run the numbers and show how the New York Times is screwed — is flawed for many of the reasons these others point out (the Times is the Grand Exception to all rules, for example) and others’ I’ll point out.

First, he far underestimates the savings that would result from the hypothetical death of print. I don’t have current numbers for the Times, but use the San Francisco Chronicle as an example: It has 3,000 employees, 400 of whom are editorial. Blodget said that if paper died at the Times, only 25 percent of labor costs would disappear. Hardly. Ink, paper, printing, handling, distribution, circulation marketing, accountants who audit sleazy distributors, plants for all this, trucks… lots of costs would disappear. I’ve heard it said that this would amount to $1 billion a year at the Times.

Second, there are other savings that papers other than the Times can execute — getting rid of commodity news, for example.

Third, there’s no reason to say that some highly profitable print products could not remain — specialized publications, free papers, hyperlocal publications, and so on.

The fundamental problem with both Blodgett’s and the Shorenstein report’s analyses — not to mention the worldview of too many a newspaper executive still — is that they essentially define the product as it is, steady state, without the innovation, change and growth the internet enables and demands.

Who says that a newspaper is just news? It can also be community. Who says all the content is produced by expensive staff? Much of it can be produced in a broader network the paper doesn’t have to pay for. Who says that the only inventory to be sold is on newspaper.com page? Build a bigger network and you have more to sell. And who says Google has to own the world?

Blodget’s latest analysis argues that Google is “sucking the life out of media.” That’s because we in media are letting Google do that — indeed, helping Google do that. Newspapers make it painfully difficult for advertisers large and small to buy them — because they spent so many years operating as monopolies (I honestly know people in the classifieds departments of newspapers who spent their days telling advertisers what they could not do with their money). And they have no idea how to serve the limitless mass of small advertisers who couldn’t afford them before but who can now afford Google. Add to this the general behind-the-times stupidness of advertisers and, yes, you do have a formula for Google world domination. But it doesn’t have to be that way. Newspapers and media companies can create and sell new value to advertisers and can band into networks to make it as easy for those advertisers to give them money as it is for them to go fill in a form at Google.

If they do nothing, I agree that newspapers are screwed. But there’s still time to do something. Tick. Tick. Tick.